SHANGHAI: China’s central bank on Wednesday stepped up policy support for its embattled economy, cutting a key rate to a record-low and reducing the amount banks must hold as reserves by around US$28 billion as the coronavirus crisis slammed the brakes on growth.
The cut should pave the way for a similar reduction to the country’s benchmark loan prime rate , which will be announced on the 20th, to lower financing costs for companies hit by the pandemic. “In general, the one-year MLF is still close to 3%, the highest among all major economies, which offers the PBOC space for further easing if things get worse,” Yun Xiong, portfolio manager at Green Harmony Capital in Hong Kong.
China’s central bank said earlier in the month it was cutting the amount of cash that small banks must hold as reserves to shore up the economy, which has been badly jolted by the coronavirus crisis. A lower MLF rate should incentivise commercial banks to reduce the lending benchmark, as the medium-term lending cost now serves as a guide for the LPR.
However, some analysts questioned whether monetary easing may be reaching its limits and doubt if it could provide sufficient boost to demand needed to lift the economy.